TRANSCONTINENTAL INC. $8.17 (Toronto symbol TCL.A; Aggressive Growth Portfolio, Consumer sector; Shares outstanding: 80.8 million; Market cap: $660.1 million; Price-to-sales ratio: 0.3; SI Rating: Average) gets 50% of its revenue, and 40% of its profits, from its direct-marketing business. Through this division, Transcontinental designs direct mail and other advertising campaigns. It also analyzes customer-purchasing data. These services help its clients increase their sales and build customer loyalty. The company also has a commercial-printing business (25% of revenue, 30% of profits), and publishes newspapers and magazines (25% of revenue, 30% of profits). The recession continues to drive down demand for Transcontinental’s direct-marketing services, particularly in the U.S., where direct-marketing revenue is down 50% from a year ago. In response, the company recently closed a direct-mail plant in Pennsylvania. It has also merged some printing plants and scaled back on newspaper and magazine publishing. These moves should save Transcontinental $100 million a year. It expects to realize $75 million of these savings in its current fiscal year, which ends October 31. The company was also forced to write down $169.3 million of goodwill related to acquisitions, mostly at its commercial-printing division. Transcontinental has experienced a drop in volumes as customers print fewer newspapers, books, magazines and advertising flyers during the recession. This was a non-cash charge, and had no impact on Transcontinental’s cash flow or cash balances. If you exclude all unusual items, Transcontinental earned $30.2 million, or $0.37 a share, in its second fiscal quarter, which ended April 30, 2009. That’s down 11.4% from $34.1 million, or $0.42 a share, a year earlier. Revenue fell 5.3%, to $563.4 million from $595.1 million. Transcontinental’s $747.4-million long-term debt is 13% more than its market cap. However, the company’s cost-cutting efforts should free up cash for debt repayments. The savings should also let Transcontinental keep paying quarterly dividends of $0.08 a share, for an annual yield of 3.9%. The stock has gained 50.7% since it hit a low of $5.42 last March. It now trades at just 5.8 times its fiscal 2009 earnings estimate of $1.40 a share. Transcontinental is a buy.
TRANSCONTINENTAL INC. $8.17 - Toronto symbol TCL.A
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